Prototype Document - Eligibility

[MarZDoates]

We are performing the ERISA audit for a 401(k) plan and have found what appears to be an inconsistency with the document. The adoption agreement shows 6 months of service. The plan uses hours of service method. It states that a year of service will be credited upon completion of 1,000 hours of service. Is this possible? Wouldn't that violate the statutory requirments?

It was always my understanding that if you are using a prototype document and select 6 months of service, you can not impose an hours requirement also. We contacted the document sponsor (same as tpa)...and were given the following answer..................

"There is no conflict and the document is correct as drafted. The

requirement is 6 months of service where the employee has worked 1000

hours.

Further, had we wanted to use the elapsed time or expected year of

service, those options would be marked.

Excerpt from Document

[ ] 10. Not applicable. There is no Service requirement.

[ ] 11. Not applicable. The Plan is using Expected Year of

Service or has a Service requirement of less than one (1) year.

[x] 12. Hours of Service method. A Year of Service will be

credited upon completion of 1000 Hours of Service. A Year of Service

for eligibility purposes may not be less than 1 Hour of Service nor

greater than 1,000 hours by operation of law. If left blank, the Plan

will use 1,000 hours.

[ ] 13. Elapsed Time method. "............

Thanks in advance for any and all input.

[J Simmons]

The excerpts are from the adoption agreement, not the prototype itself. I would suspect that the prototype, lead document itself was required (before the IRS issued an opinion letter for the prototype) to include language that if a time period (like a number of months) was selected in an employer's adoption agreement for minimum service rather than 1 or 2 "years of service" that the elapsed time method applies.

[austin3515]

The year of service definition almost certainly will apply only for vesting purposes and/or eligibility to receive an allocation of er contributions (based on what you've said). Sometimes if you know what the answer should be its easier to find that that is in fact what the document says!!

Eligibility is not the only thing that needs a year of service definition.

Give it shot!

[Kevin C]

You can have an hours requirement in a prototype and use less than a year of service. How it works will depend on the options available in the adoption agreement and the language in the base document. Our non-standardized CODA prototype has the following option:

 e. Minimum of ____ months of service in which the Employee is credited with ____ Hours of Service in each month, but in no event will the Employee be required to complete more than One Year of Service as defined at Section 1.2.91.

If they are requiring 1,000 hours in 6 months, there must also be a provison to bring into the plan someone who completes a year of service, but doesn't meet the 1,000 hours in 6 months provision.